Lawsuits Against NFL, Fanatics Evokes American Needle Case

May 31, 2024

By Christopher Deubert, Senior Writer

In 2010, the sports industry had one of its rare opportunities for the Supreme Court to weigh in on a major legal issue.  In American Needle, Inc. v. NFL, 560 U.S. 182 (2010), the Court unanimously decided that the NFL’s 32 clubs were not a single entity under antitrust law for purposes of licensing intellectual property and thus were subject to legal challenges.  That case is relevant to multiple actions brought against the NFL, its clubs, and Fanatics, a licensed retailer of NFL products.  In those cases, Casey’s Distributing, Inc.,[1] a retailer, and Charles Franz,[2] a consumer, allege that the defendants have conspired to dominate the retail market for online sales of NFL licensed products in violation of antitrust laws.  The cases could, once again, have important impacts on the sports licensing landscape.

Revisiting American Needle

American Needle, a Chicago-based headwear company, was a longtime licensed manufacturer of headwear containing NFL club intellectual property, i.e., it sold hats with NFL team logos on them.  Prior to the 2001 season, the NFL and Reebok entered into a ten-year deal whereby Reebok would be the exclusive apparel licensee of the NFL, at a cost of $250 million.  American Needle, and other manufacturers like it, suddenly no longer had the legal right to NFL club-branded merchandise. 

In 2004, American Needle sued the NFL and its clubs, alleging that the arrangement with Reebok violated antitrust laws.  More specifically, American Needle alleged that the agreement violated Section 1 of the Sherman Antitrust Act, which prohibits the unreasonable restraint of trade in a market by a multiplicity of actors.  The NFL and its clubs argued that for purposes of licensing intellectual property, which it did through an entity known as NFL Properties, they were a single-entity and therefore incapable of violating Section 1.  They made this argument despite some version of it being previously rejected several times before.[3]

After prevailing at the lower courts, the Supreme Court unanimously disagreed with the NFL’s arguments and reversed.  As explained by the court, “competitors cannot simply get around antitrust liability by acting through a third-party intermediary or joint venture.”

The American Needle case was remanded to the district court where the parties engaged in litigation centered around ultimately evaluating whether the NFL’s Reebok deal could survive antitrust’s rule of reason test, which essentially weighs the anticompetitive effects of the arrangement against its procompetitive effects.  In April 2014, the court denied dueling motions for summary judgment.  Am. Needle, Inc. v. New Orleans La. Saints,2014 WL 1364022 (N.D. Ill. Apr. 7, 2014).  In particular, the court rejected the NFL’ argument that American Needle’s proposed product market – the wholesale market for NFL trademarked hats – was too narrow to state a claim under antitrust law.  The case subsequently settled, after eleven years of litigation.

The New Lawsuits

The new actions allege that the NFL and Fanatics have conspired to limit the ways in which officially licensed merchandise can be sold online, resulting in supra-competitive prices.

The genesis of the factual allegations is the NFL’s 3% investment in Fanatics in 2017 for $95 million.  At the time, Fanatics was only in the merchandising business and was valued at a reported $4.5 billion.  The company has since moved into sports betting and, per the complaint, is worth $27 billion today.

The complaints allege that after the NFL’s investment in Fanatics, through which Fanatics also began to licensed retailer of NFL-branded sportswear, the parties sought to prevent the sale of licensed products through third-party online marketplaces (TPOMs), such as Amazon.  Instead, the NFL only wanted licensed products to be sold through the Fanatics website or the NFL’s website (which Fanatics controlled), even though other retailers had obtained the right to use NFL intellectual property.

The defendants allegedly accomplished this goal in two main ways.  First, they contractually prohibited licensors from selling their licensed products through TPOMs and boycott any they did so.  These restrictions would seem to make it hard to find licensed products since TPOMs are the principal method by which consumers purchase products online.  Further to that point, the complaints allege that Amazon is responsible for 38-48% of the e-commerce retail market.  Second, the defendants allegedly prohibited retailers from using NFL-related keywords in online advertising.  For example, according to the complaint, a retailer selling a shot glass with a Miami Dolphins logo is limited to describing the product as a “shot glass” without any reference to the team.  As a result, any internet searches for NFL-licensed products would result in the NFL and Fanatics websites being at the top of the search results.

Only when the NFL sold the broadcast rights to its Thursday night games to Amazon, did NFL-licensed products begin to be approved for sale on its website.  But even then, it was Fanatics operating the NFL’s “storefront” on Amazon.  Consequently, whereas Fanatics and Amazon previously competing outlets for buying NFL gear, they were now working together.  Moreover, Amazon allegedly agreed to prohibit sales of NFL-licensed products unless the NFL had approved the retailer.

The alleged end results of these agreements are limited retail avenues and supercompetitive prices for NFL licensed products.

Arbitration End Around

Franz’s complaint was not his counsel’s first bite at the consumer complaint apple.  They had filed a substantively identical lawsuit in March 2022.  However, the Court granted the defendants’ motion to compel that action to arbitration based on the Terms of Use on the Fanatics and NFL websites.  Maldonado v. Nat’l Football League, 2023 WL 4580417 (S.D.N.Y. July 18, 2023).

The plaintiff in the instant suit alleges he avoided agreeing to arbitration because he “used a third-party digital wallet and was not presented with any hyperlink or other text indicating that by completing his order he purportedly would be agreeing to Defendants’ Terms of Use.”

The Defendants’ Motion to Dismiss

In October 2023, the NFL and Fanatics moved to dismiss the Casey’s case.  The NFL argued that its Online Distribution Policy (ODP), which requires retailers to obtain the NFL’s approval before selling licensed NFL merchandise, is pro-competitive because it “supports retailers who invest the time and resources to create a positive, consumer-friendly, and successful retail experience that reflects the prestige and quality of the NFL brand.”  Next, the NFL insists the ODP is legal downstream restraint “imposed by a single actor” – NFL Properties.  Consequently, the NFL asserts, it “has every right to refuse to deal with licensees who allow NFL merchandise to appear on third party sites like Amazon without approval.”  Additionally, the NFL argues that Casey’s lacks standing because it is not a licensee of NFL trademarks.  Fanatics filed its own motion to dismiss relying on much the same arguments, and also arguing that Fanatics does not have market power in any relevant antitrust market.

Casey’s responded by asserting that the restraints are horizontal – not vertical.  The first step in this argument is unpacking NFL Properties into the 32 individual clubs, a position seemingly supported by American Needle.  Casey’s argues that the clubs, the NFL, and Fanatics have come together to “concentrate and control” the TPOM market for NFL licensed products and have unlawfully boycotted Casey’s from that market.

In March 2024, Judge Andrew L. Carter, Jr., assigned to both cases, stayed the Franz action pending the outcome of the motion to dismiss Casey’s complaint.

American Needle Redux?

The market for NFL licensed apparel is undoubtedly robust.  It is thus perhaps not surprising then that the way in which the NFL controls or asserts its authority in such a market might attract antitrust scrutiny, particularly when it partners with Fanatics and Amazon, both behemoths in their own industries.  While the NFL and Fanatics have multiple arguments in their motions to dismiss, it seems that one of the major issues will again be a consideration as to whether NFL Properties is a single-entity or really 32 clubs that should be competing as much off-the-field as they do on it.

[1] Casey’s Distributing, Inc. v. National Football League, 22-cv-3934 (S.D.N.Y.).

[2] Franz v. National Football League, 23-cv-11288 (S.D.N.Y.).

[3] See Gabe Feldman, The Puzzling Persistence of the Single Entity Argument for Sports Leagues: American Needle and the Supreme Court’s Opportunity to Reject a Flawed Defense, 2009 Wis. L. Rev. 835 (2009).

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